EX-99.29 2 0002.txt EXHIBIT 29 EXHIBIT 29 [LETTERHEAD OF DLJ REAL ESTATE CAPITAL PARTNERS, INC.] June 14, 2000 Columbia Sussex Corporation Attention: Mr. William J. Yung, President 207 Grandview Drive Ft. Mitchell, KY 41017-2799 Gentlemen: DLJ Real Estate Capital Partners, Inc. ("RECP") is pleased to provide you with this letter and the Memorandum of Understanding attached hereto as Appendix A with respect to our mutual interest in pursuing the acquisition and privatization of Lodgian, Inc. (NYSE: LOD) (the "Transaction"). This letter, together with the Memorandum of Understanding, is intended to confirm certain understandings between RECP and Columbia Sussex Corporation (together with its shareholders, directors and affiliates "Columbia Sussex"; RECP and Columbia Sussex herein referred to individually as a "Party" and collectively as the "Parties"), with respect to the Transaction. Subject to the requirements of applicable law, the terms and conditions of this letter, the Memorandum of Understanding and the Transaction, including the identities of all Parties, will be held by the Parties in strict confidence and will not be disclosed to anyone, other than legal counsel, agents and representatives who need to know such information in connection with the Transaction, otherwise as advisable after approval by RECP, or as required by law. Subject to the requirements of applicable law, neither Columbia Sussex nor RECP, their respective agents or representatives, shall make any news releases or other public disclosure with respect to the Transaction without the prior consent of the other Party. This letter is intended solely for the benefit of the Parties hereto and is not intended to confer, and shall not be deemed to confer, any benefits upon, or create any rights for or in favor of, any person other than the Parties. This letter shall be governed by the laws of the State of New York and may not be amended, and no provision hereof may be waived or modified, except by an instrument in writing signed by the party to be bound. Recognizing that RECP's review of the Transaction and the negotiation and drafting of documents have to date required and will continue to require RECP to expend significant time, effort and money, and to induce RECP to continue such review, negotiation and drafting, the Parties agree that from the date of their acceptance of this letter agreement until the earlier of December 31, 2001 or such time as either Party stops pursuing the Transaction (such period, the "Exclusivity Period") the Parties will negotiate in good faith with each other to consummate the Transaction, and will not, and will cause each Party's respective offices and directors and any advisors which have been retained for the purpose of evaluating the proposed Transaction to not, encourage any offers from, solicit, encourage, initiate, respond to (other than by a bare statement without further detail or explanation that they are not permitted to respond) or continue any discussions with, engage in or continue to engage in negotiations with, or provide any information to, or enter into any agreements or understandings with, any corporation, partnership, person, entity or group, other than the other Party and its respective officers, directors, employees and agents, concerning or relating to equity financing for the Transaction without the prior written consent of the other Party. Should a Party become aware Columbia Sussex Corporation June 14, 2000 Page 2 of any inquiry or request by another person or entity with respect to the Transaction, such Party shall promptly notify the other Party of such inquiry, indicate the identity of the offeror and the terms and conditions of any proposals or the nature of any inquiries or contacts, and thereafter keep all Parties informed, on a current basis, of the status and terms of any such proposals or offers. Upon the consummation of the Transaction, as and when requested by RECP, Columbia Sussex will promptly reimburse RECP for all of their actual legal and other out-of-pocket expenses in connection with the Transaction. Prior to the consummation of the Transaction, or in the event the Transaction is not consummated, as and when requested by RECP, Columbia Sussex will promptly reimburse RECP for all of their respective out-of-pocket expenses incurred in connection with the Transaction (including those incurred prior to the execution of this letter agreement), including up to $500,000 in fees and expenses of advisors, accountants, attorneys, consultants, and other parties whom RECP has engaged to assist them in connection with the Transaction. This letter sets forth the intent of the parties with respect to the transaction but, except for the third, fourth, fifth, and sixth paragraphs hereof, shall not create any legal or binding obligation. No such obligation (except for such paragraphs, which shall be immediately binding) shall arise unless and until mutually satisfactory definitive documentation (a "Definitive Agreement") has been executed and delivered by the Parties hereto. The obligations of RECP and Columbia Sussex under this letter agreement shall automatically terminate and be superseded by the provisions of a Definitive Agreement, if any. If the foregoing accurately summarizes your understanding with respect to the proposed Transaction, please date and execute the duplicate original of this letter that is enclosed and return the same to the undersigned. Sincerely, DLJ REAL ESTATE CAPITAL PARTNERS, INC. By: /s/ Philip C. Tager ------------------------------- Print: Philip C. Tager ------------------------------- Title: Senior Vice President ------------------------------- Accepted and agreed this 15TH day of June, 2000: COLUMBIA SUSSEX CORPORATION By: /s/ Joseph E. Marquet ------------------------ Print: Joseph E. Marquet ------------------------ Title: Vice President - Finance ------------------------ Columbia Sussex Corporation June 14, 2000 Page 3 APPENDIX A MEMORANDUM OF UNDERSTANDING DLJ REAL ESTATE CAPITAL PARTNERS, INC., EDGECLIFF, INC. AND COLUMBIA SUSSEX CORPORATION Issuer ............................ Edgecliff, Inc., a Delaware corporation (the "Issuer") wholly owned by Edgecliff Holdings, LLC ("Holdings"), the sole member of which is Edge Cliff Management, LLC (the sole members of which are William Yung and his family trusts). Issuer Equity Contribution ........ At a minimum, $50,000,000.00 (but in no event less than thirty percent (30%) of the total amount of equity to be contributed to the Issuer by Holdings and DLJ Real Estate Capital Partners, Inc. ("RECP") required to effect the Transaction (as hereinafter defined)) shall be contributed to the Issuer by Columbia Sussex Corporation and Holdings (such amount to be reduced by the cost of 4,191,800 shares of Lodgian, Inc. acquired by Columbia Sussex Corporation, Holdings and their affiliates as of the date hereof, currently estimated to be $18,000,000); such equity contribution shall be maintained by the Issuer until such time as all of the Preferred Stock has been redeemed by the Issuer. Preferred Stock ................... Cumulative Redeemable Preferred Stock of the Issuer. Stated Amount ..................... The lesser of (i) $150,000,000.00 and (ii) seventy percent (70%) of the total amount of equity to be contributed to the Issuer by Holdings and RECP required to effect the Transaction, provided that RECP shall have the right, but not the obligation, to contribute at least $100,000,000.00. The amount of debt of the Issuer shall be reduced in order to accommodate the minimum amount to be contributed hereunder and under the heading "Issuer Equity Contribution" above. Columbia Sussex Corporation June 14, 2000 Page 4 Issue Date ........................ The date the Preferred Stock is issued to the holder. Use of Proceeds ................... Solely for the acquisition and privatization of Lodgian, Inc. (the "Transaction"). Dividend Guaranty ................. Columbia Sussex Corporation ("Guarantor") shall guarantee the Issuer's payment of Quarterly Cash Dividends for the four quarters in the second year after the Issue Date. Hotel Assets ...................... All of the hotels and other assets owned by the Issuer, whether acquired before or after the Issue Date. Senior Debt ....................... Any existing debt as of the Issue Date and any other debt incurred by the Issuer after the Issue Date. Term .............................. 8 years. Stated Value ...................... $25 per share plus the dollar amount which will produce an annual IRR of 30% calculated on a quarterly basis on the Stated Amount of the Preferred Stock being redeemed by the Issuer; taking into consideration (i) any Quarterly Cash Dividends paid to date attributable to the value of such shares being redeemed and (ii) any payment of a portion of the Management Fee (as hereinafter defined) to the holder. Liquidation Preference; Ranking ... $25 per share plus the dollar amount which will produce an annual IRR of 30% calculated on a quarterly basis on the Stated Amount of the Preferred Stock then outstanding, taking into consideration (i) any Quarterly Cash Dividends paid to date attributable to the value of the outstanding Preferred Stock and (ii) any payment of a portion of the Management Fee to the holder. The Preferred Stock will rank senior, with respect to distributions upon liquidation, to (x) the Issuer's common stock and (y) any other classes of the Issuer's capital stock (common or preferred, whether now existing or created in the future). Quarterly Cash Dividend ........... 15% per annum is to be paid on the Stated Amount (as it may be increased pursuant to this paragraph) less any portion of the Management Fee actually received by the Columbia Sussex Corporation June 14, 2000 Page 5 holder; payable in cash quarterly in arrears; cumulative; the Quarterly Cash Dividend for the first quarter of the first year shall be paid in kind. Work-In-Progress Reserve Fund ..... There shall be set aside at closing an amount necessary to complete the work-in-progress construction of new Hotel Assets; such amount to be approved by the holder after completion of its due diligence. Excess Cash Flow from Operations .. Any net cash flow from operations in excess of debt service on the Senior Debt and FF&E reserves and any other required reserves under the Senior Debt documents or franchise agreements ("Excess Cash Flow") generated by the Issuer shall be used as follows: first to fund Interest Reserve (to be defined) requirements of the Senior Debt; second to pay Quarterly Cash Dividends of Preferred Stock; and third at the Issuer's option, to either repay Senior Debt or to redeem Preferred Stock, subject to the Optional Cash Redemption provision below. Upon or after the fifth anniversary of the Issue Date, any Excess Cash Flow generated by the Issuer shall be used to fund the Mandatory Redemption. Proceeds from Capital Events ...... All proceeds of a disposition or refinancing of any of the assets comprising the Hotel Assets shall be applied as and in the order set forth below: (i) FIRST, to pay third-party out-of-pocket costs and expenses incurred and paid in connection with such disposition or refinancing; (ii) SECOND, to fund payments required to discharge Senior Debt, in accordance with its terms, encumbering any property transferred; (iii)THIRD, to fund any payments required by any other Senior Debt, if any, after taking into consideration the $10,000,000 general basket allowed to the Issuer by the High Yield financing provided by Lehman Brothers, which basket shall be utilized to the fullest extent to provide for the payment to the holder of the amounts due hereunder; and Columbia Sussex Corporation June 14, 2000 Page 6 (iv) FOURTH, any additional proceeds shall be applied in the same manner as Excess Cash Flow. Veto Rights ....................... At all times while the holder owns any amount of Preferred Stock, the holder will be entitled to (i) prevent dividends, redemptions and other distributions with respect to the Issuer's capital stock (other than with respect to the Preferred Stock); (ii) prevent the Issuer from incurring any additional debt or from refinancing the Senior Debt unless any such replacement debt (A) shall contain covenants which are not more restrictive than those in the existing Senior Debt (provided further, that in connection with refinancing any Senior Debt upon its stated final maturity, any such replacement debt need only be on terms consistent with those generally available in the market place at the time of such refinancing so long as such replacement debt complies with clause (B) below and that the Issuer complies with clause (C) below at the time of such refinancing), (B) does not prohibit the Issuer from paying the holder the amounts payable hereunder as and when they are due and (C) the Issuer maintains, on a pro forma basis after incurring any such debt, a Cumulative Coverage Ratio (as hereinafter defined) equal to 1.1 during the first year after the Issue Date and the Cumulative Coverage Ratio increases by 0.1 per year thereafter; (iii) prevent the Issuer from liquidating or dissolving; (iv) prohibit mergers, consolidations, changes of control or similar transactions including the reduction in William Yung's investment in the Issuer; (v) prohibit sale or other disposition of the Hotel Assets except for a pre-determined list of hotels to be determined during the due diligence process; (vi) prohibit sale-leasebacks; (vii) place restrictions on major alterations or modifications (based on certain dollar thresholds) of any property except for a pre-determined list of hotels to be determined during the due diligence process; (viii) place restrictions on the issuance of additional equity (other than equity ranking junior to Preferred Stock); (ix) place restrictions on Columbia Sussex Corporation June 14, 2000 Page 7 transactions with affiliates of the Issuer other than with respect to the Management Agreement (as hereinafter defined); and (x) place restrictions on any change in the officers of the Issuer. "Cumulative Coverage Ratio" shall mean the ratio, for the latest four consecutive quarters, of EBITDA to an amount which is equal to the sum of (i) debt service on Senior Debt and (ii) Quarterly Cash Dividends. Additional Covenants .............. Those typical for this type of transaction and any additional ones appropriate in the context of the Transaction, including, without limitation, those set forth below: (i) prohibition on amendment of organizational documents; (ii) restrictions on modification of hotel management/franchise agreements; (iii)restrictions on amending or refinancing the Senior Debt; (iv) restrictions on making loans or other investments; (v) restrictions on the settlement of any claim, subject to the customary basket exclusions; (vi) except as otherwise authorized by the Senior Debt documents, restrictions on the restoration of properties after any casualty or condemnation; (vii)requirement to maintain insurance coverage; (viii) ERISA covenants; (ix) restrictions on capital expenditure; and (x) requirement to maintain a minimum amount of working capital, or in lieu thereof, an approved line of credit. Mandatory Redemption .............. All of the holders remaining Preferred Stock is mandatorily redeemable by the Issuer at the Liquidation Preference upon the fifth anniversary of the Issue Date. Columbia Sussex Corporation June 14, 2000 Page 8 Sale of Hotel Assets .............. If: (a) The Issuer fails to pay the holder the required amount of the Mandatory Redemption in cash as and when required, or (b) At any time after the first anniversary of the Issue Date, the Issuer fails to pay a Quarterly Cash Dividend as and when required, subject to any applicable cure period (including cure by the Guarantor), or (c) At any time after the first anniversary of the Issue Date, the Issuer defaults under any of the Veto Rights or Additional Covenants and such default is continuing after any applicable cure period, or (d) At any time after the first anniversary of the Issue Date, the Guarantor fails to pay the holder any amount due and payable under the Dividend Guaranty within 30 days after the holder demands payment, or (e) The Issuer fails to comply with the restrictions placed upon the use of Excess Cash Flow, or (f) The Issuer fails to purchase any Preferred Stock put to it in accordance with the provisions described under "Certain Events", or (g) a default under the Senior Debt at any time after the Issue Date, subject to any applicable notice and cure period under the Senior Debt documents. (Such events described in clauses (a) - (g) collectively referred to as the "Redemption Defaults"), then the holder will immediately have the right (but not the obligation) to direct the sale of the Hotel Assets by merger, consolidation or single or multiple asset sale (collectively, hereinafter referred to as "Hotel Asset Sales"). After application of the net proceeds from such Hotel Asset Sales to the payment of any outstanding Quarterly Cash Dividends and the Liquidation Preference, the Issuer's Columbia Sussex Corporation June 14, 2000 Page 9 redemption obligation will continue to be in default to the extent of any cumulative remaining deficiency. To the extent any net proceeds from Hotel Asset Sales exceed any outstanding Quarterly Cash Dividend and the Liquidation Preference, the Issuer shall be entitled to the residual of such proceeds. Hotel Asset Sales will be effected in a manner that does not conflict with the limitations set forth in any instrument evidencing the Senior Debt ("Senior Debt Instruments"). Optional Cash Redemption .......... The Issuer has the option to redeem the Preferred Stock for cash, at the Stated Value (plus accrued and unpaid dividends) in accordance with the following schedule: a. Years 1 and 2 No Optional Cash Redemption b. From the second Redemption of anniversary of one-third of the the Issue Date - Preferred Stock end of Year 3 c. From the third Redemption of an anniversary of additional 42% of the Issue Date - the end Preferred end of year 4 Stock d. From the fourth Redemption of the anniversary of remaining Preferred the Issue Date - Stock outstanding end of year 5 e. Anytime: IPO Redemption of all Preferred Stock outstanding Certain Events .................... Upon (i) any voluntary or involuntary, direct or indirect change of control of Issuer or Guarantor (by sale of capital stock, merger, consolidation or otherwise) or (ii) any amendment or modification to the Senior Debt Instruments after the Issue Date that reduces or limits the amount of cash or other consideration that the Issuer is able to pay in order to fund a dividend or redemption payment provided for under the terms of the Preferred Stock or otherwise would preclude the performance by the Issuer of its obligations under the terms of the Preferred Columbia Sussex Corporation June 14, 2000 Page 10 Stock, the holder will have the option to put all of the Preferred Stock to the Issuer for cash at the Liquidation Preference. Notwithstanding the foregoing, the transfer of William Yung's interest in the Issuer upon his death shall not be deemed a change of control for the purposes of clause (i) above; however, upon William Yung's death, the holder shall have the right to approve the new chief executive officer of both the Issuer and the Management Company (as hereinafter defined), such approval shall not be unreasonably withheld by the holder. Public Offerings of Stock; IPO Redemption; Redemption Premium .... The holder will have customary "piggy-back" rights in public offerings of any class of stock. In the event of the initial public offering of the common stock of the Issuer, the holder shall be entitled to a redemption premium equal to the greater of (i) the initial Stated Amount and (ii) the dollar amount which would produce an annual IRR of 30% calculated on a quarterly basis on the initial Stated Amount as calculated at the time such initial public offering occurs. Management ........................ The Hotel Assets shall be managed by an affiliate of Columbia Sussex Corporation reasonably approved by the holder (the "Management Company") pursuant to a management agreement acceptable to the holder (the "Management Agreement"). The Management Agreement shall provide that upon a Redemption Default, the holder shall have the right to terminate the Management Agreement. The Management Company shall receive a 4% management fee from the Issuer (the "Management Fee"). The holder shall own twenty-five percent of the Management Company and the governance structure of the Board of Directors of the Management Company shall mirror that of the Issuer. A dividend equal to twenty-five percent of the Management Fee shall be paid to the holder. Upon redemption in full of the Preferred Stock, the Issuer shall have the right to purchase the holder's interest in the Management Company for $1.00. Columbia Sussex Corporation June 14, 2000 Page 11 Officers of Management Company .... The officers of the Management Company shall include a chief financial officer, an accounting officer and chief operating officer approved by the holder from time to time. Voting Rights ..................... After the Issue Date and until such time as all Preferred Stock has been redeemed by the Issuer, the holder will have the sole right to elect three directors to the Board of Directors of the Issuer, which directors shall comprise 50% of such Board of Directors. During the pendency of any Redemption Default, the holder will have the right to take control of the Board of Directors of Issuer by expanding the Board of Directors to add an additional director and the holder shall have the right to appoint such additional director. After the appointment of such additional director, the majority of the Board of Directors shall have the right to replace the officers of the Issuer and such new officers shall have the right, among other things, to (i) declare and pay the defaulted and all future Quarterly Cash Dividends and to provide for any unpaid and any future Mandatory Redemption payments (in each case out of funds legally available therefor); (ii) to direct the sale of Hotel Assets in order to fund any defaulted dividend or redemption obligation; (iii) terminate the Management Agreement and enter into a new management agreement with a management company selected by the holder; and (iv) take any such actions as the Board of Directors may direct. Information ....................... Until all of the Preferred Stock has been redeemed, the Issuer will furnish the holder with (i) monthly consolidated profit and loss statements and monthly profit and loss statements for each property comprising the Hotel Assets, (ii) quarterly consolidated financial statements and (iii) any other available financial information it may request. Conditions to Closing ............. (i) The holders of the Senior Debt must consent to the terms of the Preferred Stock; (ii) Satisfactory completion of due diligence by the holder; and Columbia Sussex Corporation June 14, 2000 Page 12 (iii)Final approval of the holder's investment committee. Placement Fee ..................... 2% of the Stated Amount payable to the holder upon closing of the Transaction. Break-Up Fee ...................... 50% of any "break-up fee" the Issuer may be entitled to pursuant to any agreement with Lodgian, Inc. Transfer of Preferred Stock/RECP's Interest in the holder ............ RECP shall have the right to transfer (i) up to 49% of the shares of Preferred Stock and/or (ii) up to 49% of its interest in the holder. Transfer of RECP's Interest in the Management Company ............ RECP shall not transfer any interest in the Management Company to a third party that does not hold the Preferred Stock or any interest in the holder. Other Terms ....................... The Preferred Stock purchase agreement will contain representations, warranties, closing conditions and opinion requirements as the holder may reasonably request; outside counsel to the Issuer must opine on the validity of the Preferred Stock and the Special Committee; the Issuer will reimburse the holder for its reasonable legal and other expenses in connection with the issuance of the Preferred Stock; other terms as agreed.